Roughly a year after
Carnegie Asset Management
made a minitender offer for shares of
(MAT - Get Report)
Securities and Exchange Commission
filed a lawsuit alleging that the firm's principals engaged in securities fraud.
Carnegie Investment Management
, run by Jeffrey and Hubert Leach, never paid investors who tendered Mattel shares in November of last year, the agency said. The brothers, according to the SEC suit and several related filings in Philadelphia bankruptcy courts, used the shares as collateral for margin loans to finance trading in other stocks.
The SEC suit, filed in U.S. District Court in Philadelphia, alleges the brothers had previously made similar offers for shares of the
Fruit of the Loom
. Minitender offers are solicitations made to buy less than 5% of a company's outstanding shares, and have become a concern for investors because the process isn't bound by the regulatory strictures of full-fledged tender offers, which require detailed filings.
The SEC asked the court to compel the Leach brothers, who established Carnegie as a Cayman Islands corporation and traded through tiny
First Colonial Securities
in Boca Raton, Fla., to return any gains and repay investor losses, which were estimated at $1.4 million.
The Leaches, who ran their operation from a small office in Philadelphia, made $4.5 million in unlawful profits, the SEC charges. That didn't stop Carnegie from filing for bankruptcy when First Colonial's clearing firm,
, froze their account pending payment for the stock collected in the Mattel tender offer.
The SEC's suit alleges the Leach brothers' tender offers contained material omissions and false statements about the offer's intent, were structured without the use of any escrow account or independent receiving agent and failed to disclose they were unable to pay for the shares. It also claims they made false and misleading statements outside of the offering documents, such as pledging to pay for shares by a certain date, and not completing the transaction.
Attorneys for the Leaches could not be reached.